The Christian Origins Of Austrian Economics

Economics and religion overlap because both deal with people. Austrian economics is the most Christian of the schools of economics partly because its view of people, time, and money fit Christianity like a glove. This is true, although the greatest economists of the Austrian school in the 20th century -- F.A. Hayek and Ludwig von Mises -- were agnostics. Mises may have become a Christian late in life.

Another argument for the Christian origins of Austrian economics is that the school can trace its genesis back to the Godly theologians associated with the University of Salamanca, Spain, in the 16th and 17th centuries. Church fathers in the early years of Christianity had embraced the economics of Aristotle and Cicero rather than that of the Bible. Their reasons for doing so have been lost, but it may have been due to the tendency of churches suffering persecution to elect young converts from the nobility as bishops because they enjoyed political power. The sons of nobility had a high regard for the great philosophers of antiquity and tended to baptize their economics.The chief economic errors of antiquity included a contempt for commerce, the prohibition of charging interest on loans, a value theory that said things had intrinsic value, and a theory of a “just price” that made profits immoral. The condemnation of commerce was so strong that some church fathers thought it impossible for merchants to enter heaven. So merchants who became wealthy tended to give half to the Church as a means of buying their way into heaven and to use the remainder to buy land and titles of nobility to protect their wealth from other aristocrats.

Then Martin Luther nailed his theses to the Wittenberg door and launched the Reformation. Following the great Erasmus, he pointed out some legitimate problems with the Church, which caused a few Catholic theologians to seek to reform the Church from within. Among those were the scholars associated with the University of Salamanca. They risked imprisonment and death for many of their ideas, especially their condemnation of tyranny.

The dethroning of Aristotle in astronomy and encouragement from the Reformation caused the scholars at the University of Salamanca to question Aristotle’s economics. They began to observe how business works and became the first empiricists in economics. Their investigations led them to believe that the only just price is one determined by “common estimation,” or a free market. They sanctified property to the degree that the state would become a thief if it taxed citizens beyond the amount required to perform its duty and the only duty of the state was to punish those who violated the citizen’s rights to life, liberty and property. Yes, the Salamancan scholars invented that formula, not John Locke. Other breakthroughs in economics included the subjective theory of value and sound monetary theory.

The Spanish government burned many of the writing of the scholars of Salamanca and the Reformation censored Catholic books in Protestant countries. However, their ideas lived on in the economics of later scholars without receiving credit for them. The works of those scholars were lost to the West until Marjorie Grice-Hutchinson resurrected them in the 1950s in her book, Readings in Spanish Monetary Theory. And according to Jörg Guido Hülsmann in chapter 4 of Mises: The Last Knight of Liberalism, Carl Menger, the founder of Austrian economics relied on the principles of the Salamancan scholars:

In developing his theory of value and prices, Menger relied on the remnants of an ancient price theory from the late-Scholastic School of Salamanca, which in the sixteenth and early seventeenth centuries had stressed precisely those subjective features of the pricing process that were conspicuously absent from the British classical school. But the Spanish late-scholastics never produced a treatise on economics, and their discoveries about the nature of value and prices were scattered across thousands of pages…

The subjectivist theory of value survived only in this diffused form with one important exception: Etienne de Condillac's great treatise, Commerce and Government. Published in the same year as Smith's Wealth of Nations (1776), Condillac's treatment gave the first full axiomatic presentation of political economy on the basis of the subjectivist theory of value…Commerce and Government was one of the main sources of inspiration for Menger (who of course read French, among other languages) when he elaborated his economic value theory.

Jesus Huerta de Soto, professor of economics at the Complutense University of Madrid and Spain's leading Austrian economist, wrote,

“And I have a letter from Hayek dated January 7, 1979, in which Hayek asks us to read Rothbard's article [The Foundations of Modern Austrian Economics, 1974]. He says that Rothbard and Marjorie Grice-Hutchinson ‘demonstrate that the basic principles of the theory of the competitive market were worked out by the Spanish scholastics of the 16th century and that economic liberalism was not designed by the Calvinists but by the Spanish Jesuits.’"

Austrian economics has a direct link to the University of Salamanca through Condillac. But Joseph Schumpeter promoted the scholars of the University of Salamanca in his 1954 masterpiece, History of Economic Analysis, as the first modern economists and the intellectual ancestors of Adam Smith. The economics of Salamanca traveled to the Dutch Republic through Leonardo Lessius then to Protestant intellectuals via Hugo Grotius, Samuel Pufendorf, Francis Hutcheson, and finally Adam Smith.

However, Adam Smith set economics back by insisting on the labor theory of value, which inspired Karl Marx to claim that profits were theft from the workers. Not until William Stanley Jevons and Leon Walras explained marginal utility in the 1870s did students of Smith recover some of the scholastic emphasis on subjective prices. Those two economists then led economics down another dark alley as they enslaved the field to math. Historians credit Menger, Jevons, and Walras for independently arriving at marginal theory, but Menger’s contribution extended the subjective theory of value that the scholars of Salamanca had birthed while the other two understood their theories as equations.

If Christians are looking for Christian economics, they can do no better than Austrian economics, the great grandchild of the devout theologians of the University of Salamanca.

First published at Townhall Finance.